{LONGTERMINVESTORS} Stock Update - Punj Lloyd

February 26, 2016   Stock Update Punj Lloyd Reco: Book out CMP: Rs22   Pain persists, long way to go; Book out   Key points Weakening execution and high leverage eroding net worth: Punj Lloyd's 9MFY2016 earnings were severely affected with consolidated revenues down by 33% at Rs3,561 crore YoY and operating loss almost 100% up at Rs583 crore on account of no movement in a set of projects, freezing of working capital limits and delay in award of new projects won. Further, its consolidated net debt at Rs7,067 crore has extended loss for the company with quarterly interest expense rate at almost Rs300 crore. Consequently, we believe the company's consolidated net worth which stood at Rs966 crore in FY2015 is likely to get completely eroded. Marred with claims and account receivables: Punj Lloyd has been targeting Rs3,500 receivables, major ones being from ONGC (Rs1,730 crore) and Qatar Petroleum (100 million dollars) for the past one year. The management is expecting claims from ONGC to settle around in Q4FY2017 and in Q1FY2017 for Qatar Petroleum. The company has been able to receive only Rs340-crore claims during 9MFY2016. The only silver lining has been healthy order booking (Rs6,400 crore) and L1 position (Rs3,000 crore) during FY2016. However, the Libya order backlog (Rs7,457 crore) has seen no traction at all. Mammoth task to restructure business; Book out: We believe the focus of the company during FY2017 will be on cleaning up its balance sheet with settlement of claims and maintaining execution through mobilisation advances to be received from new projects. In the meanwhile, the significant losses at the consolidated level is likely to totally erode its net worth and liquidity crunch to be faced through the year for debt servicing will put further delay in recovery in restructuring its balance sheet. We have been negative on the stock with Reduce rating. With growing uncertainty on possible revival and clean-up of its books, we Book out the stock from our active coverage. Risk to our call: A faster-than-expected receipt in claims and significant deleveraging are the risks to our take on the stock.   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. Regards, Sharekhan Fundamental research team www.sharekhan.com

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